Infinite cash on cash, but 3% cap rate

[Andrew Broadbent]

So I am interested in getting a multi unit property with my VA loan and renting the units I am not living in.
I am able to find such properties that will cash flow once I move out and offset my costs before hand. Easy. The VA loan calls for no down payment so the cash-on-cash is infinite. However the cap rate on these properties I have found would be 3% at their listed price. If they come down and I raise rent some it could come to maybe 4%. Barring a purchase for half the list price I am not sure how else to raise the cap rate.

So is the cap rate that important if I have no money in the property?

[Frank Gallinelli]

@Andrew Broadbent Are you including the rent value of the unit you'll be occupying?

If the property is 4 units or less, then capitalizing the income is usually not the method of choice for estimating value. Many appraisers will use a market-driven gross-rent multiplier, or a straight comparable-sales approach.

Think about the fair-market rent value of the apartment you occupy, then ask yourself: Will it cost me more or less to live here as an owner than it woud as a tenant? (Remember to be realistic as to your costs as an owner.) Build a pro forma of potential cash flows and resale going out a couple of years, again plugging in the market rent for your apartment. Can you ultimately see yourself making a profit when you sell?

My first investment property was an owner-occupied 3-family forty years ago. It was under-rented, so the increase in revenue over time worked out well, and being the on-site landlord was a great education.